Seven Excuses CEOs Cite for Not Creating a Board of Directors

board

by scott pickard

No company is too small to create a board of directors, and no company is too large and sophisticated that it cannot improve upon its board because directors have the potential to add significant value to management and the company in countless ways.

Here’s how:

  • Directors can give good advice insiders might not hear otherwise.
  • Directors can be frank in a way employees won’t or can’t.
  • Directors ask, “Why would you do that?”
  • Directors help management network into important strategic resources such as partners, talent, capital, and markets.
  • Directors bring new ideas.
  • Directors double-check management’s plans and make them accountable.
  • Directors check for compliance to ethics, laws, regulations, and just plain common sense and good judgment.
  • Directors bring experience – they’ve been there, done that, and there’s no sense reinventing the wheel because that consumes time and money; and, there’s no sense in making mistakes because that’s painful.
  • Directors pitch in and help during periods of rapid growth or crisis.

That said…excuses, excuses

There is no good argument (generally) against using a board of directors, yet owners and CEOs continue to cite the following excuses:

1. I don’t have enough time

There are certain high-leverage activities for CEOs and owners that they must put at the top of their priority list because even though these tasks do take valuable time to plan, prepare, and execute (e.g., financial audits; a strategic planning retreat; a performance review with a key employee; a board of directors meeting), these activities hold the potential to make a substantial positive impact for the business. Executing these high-leverage tasks as a business leader is simply something you have to do, so you make the time.

2. I can’t afford it

The cost and complexity of a board of directors scales to the size of the company. In a large or public company you can expect to attract sophisticated directors and they will expect a compensation package commensurate with company size and the commitment required.

But if you are a start-up company and only a few people are involved, you most likely won’t be attracting public company directors that expect big fees. But you can attract successful local people that were once in your shoes and know what it’s like to start and build a company and they’d be pleased to serve on your board as a way to give back – sometimes only for the price of a dinner and a few beers.

3. I don’t know anyone to ask

Many people say this initially but if they take a few minutes to reflect, they can always think of someone to invite to be a director. Also, they usually know someone who could be an intermediary to a director candidate. Good intermediaries can be a friend; a relative; a business colleague; your accountant, attorney, or banker; a professor; the Chamber of Commerce; a valued and trusted key supplier or client.

There are also organizations that foster better corporate governance and directorship that can match directors looking for board assignments with companies looking for good directors. For larger companies there are search firms that specialize in recruiting directors to large and public boards.

4. I don’t know what value they would bring – I know what to do

An executive with this kind of attitude most likely feels this way about many things, not just a board of directors. This kind of insulated, ivory-tower attitude only limits new opportunities for management and the company.

The objective evidence indicates that boards do provide real value to management and shareholders. However, it is true that boards also hold the potential to screw up royally and there are many examples of that from both for-profit and nonprofit boards, big to small. But that is not because the value proposition of a board is not valid, only that those particular boards were dysfunctional and acted irresponsibly. The overwhelming majority of boards do great work for their constituents.

5. I don’t want anybody to know what we’re doing

It’s a valid concern for many companies, but you cannot operate inside a top-security box forever. You need a few select trusted advisers that you can lean on and use as sounding boards so that your thinking and decision making does not become inbred and myopic. Directors can give you fresh and unbiased insights and they will respect and maintain the confidentiality of your plans and intellectual property.

6. I don’t know how to set up and manage a board

If you can create, manage, and grow a company, you can create and manage a board. Most attorneys are very helpful in making sure you cover the legal basics. Experienced directors themselves will be very helpful and patient as you proceed and learn on the job.

There’s a wealth of good books and training programs at your disposal. In essence, a board meeting is just like any other meeting where you set a prioritized agenda, meet, discuss, and get things done.

7. I don’t want any outsiders involved – this is a family business

It is a truism that there is family, and then there is everyone else. Experienced directors understand this as it relates to the dynamics of a family business board, and still you would be surprised how effective (and refreshing!) an outside director can be inside a tight-knit family business and board.

Family members are constrained in so many ways from being totally honest with each other. The outside director is unconstrained and sometimes the only one to tell it like it is. This can be an invaluable resource for a family business.

Just do it

If you’ve been dragging your feet to develop a board, just get on with it.

At the outset of building a board you will find that you can learn quickly with the help of the directors themselves. In a year’s time you will be the expert. You will find that your directors may refer you to other non-competitor CEOs who are looking for good board members. This is one of the primary ways the community of directors populate their ranks.

- sp -

CEO


Posted in CEO

Why is this guy the #1 ranked CEO in the world?

Management and Best Practices CEO CEOs make 300X more than workers, but are they doing 300X the work? performance evaluation What are the metrics for the top performing CEOs? > Board  Is the CEO in touch with the employee rank and file?  Does the CEO have employees' respect? Does the board require the CEO to complete a self-evaluation?  Has the board benchmarked the strategic performance of CEOs at peer companies?  Is the board responsive to the concerns of shareholders about the effectiveness and responsiveness of management?  On what grounds is the board considering firing the CEO? (a) poor company performance; (b) strategic disagreement with the board; (c) personality clashes; (d) consolidation of control due to merger; (e) unwillingness of CEO to comply with a board mandate; (f) personal problems; (g) illegal/improper behavior succession Promoting insiders is a strategy to maintain consistency, whereas hiring outsiders is a strategy for change. Sessions Has the board challenged the heir-apparent to be compared against external candidates?  Has the board been able to observe and evaluate the heir-apparent in representative trial assignments?  Is competition among internal candidates getting out of hand?  Does the board have a healthy collaboration with the incumbent CEO in the succession process?  Has the board established clear performance benchmarks and an exit timetable for the incumbent CEO?  Is the incumbent CEO attracting, hiring, and developing key employees worthy of succession candidacy?  Is there a turnover problem with top management candidates?  Does the incumbent CEO restrict access by the board to top management?  Should the board consider removing the incumbent CEO from the board?  Is the board developing and maintaining a familiarity with top succession candidates within and external to the company?  Is retirement of the incumbent CEO being delayed by lack of a successor? For the incumbent CEO close to retirement, has the board structured a compensation package to incentivize cooperation with a successful transition? interim CEO Does the board have a plan for an interim CEO in the event of a sudden and unexpected departure or death of the CEO? Does the board need to consider an outside turnaround specialist to manage the current crisis in the company? interviews Are we getting continuous improvement after each interview process? | interviews: Conversations from the Corner Office | videos: CEOcast  books/movies, articles, blogs: Steve Jobs: book, movie | CEO Succession Carey | Effective Succession Planning Rothwell Intersections | Poverty/income gap

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by scott pickard

Sport plays an important part in the lives of many business leaders. Nothing can make the juices flow like sinking a 30-foot birdie putt to win the match or setting a personal record in the local 10K run. Risking, winning and losing, playing, pushing personal limits – all are tonics for the chief executive, but they require “getting in the game.”

For Dick Jorgensen, Red Cashion, and Tom Dooley, getting in the game was a way of life. During their days as NFL Referees,  they were chief executives of successful corporations, but on the weekends they exchanged their business suits for “zebra suits” to become NFL referees. Whether on the field or off, these CEOs shared an uncommon passion to perform their best.

Dick Jorgensen: Banking on the Blitz

Dick Jorgensen had the distinction of having been the head referee for 1990’s Super Bowl XXIV. It was the pinnacle of a 22-year career as an NFL referee when one considers that the officials on Super Bowl Sunday are voted the best at their position by the NFL.

Head Referee Dick Jorgensen (#60) follows San Francisco quaterback Joe Montana (#16) and the rest of the action at Sperbowl XXIV in 1990.

When he was not watching Joe Montana fade back for the bomb, Jorgensen was president of Marine Bank in Champaign, IL, a banking affiliate of the Marine Corporation with over $1 billion in assets. The bank always supported Dick’s other life as an NFL referee, as banks generally support the active community involvement of all employees.

At 56 (in 1990) and coming off recent back surgery, Dick moved a little slower than he did as captain of the University of Wisconsin’s basketball team.  He was concerned about his upcoming annual NFL physical and stress test, but he was determined to pass. He daily stretched, swam, and lifted weights – whatever it took to ensure he would get another shot at a Super Bowl. Having participated in Super Bowls VIII, XV, and XXIV, he didn’t want to pass up another opportunity to be part of “the immensity of the game.”

The rewards of a Super Bowl experience, however, aren’t without cost. The pressures of balancing a banking career and an active family life while on the road for the NFL were substantial, especially for the family left behind each weekend. “But once the kickoff comes and I get into the flow of the game,” asserted Jorgensen, “all the pressure is off. It’s exhausting, but mentally refreshing.”

Tom Dooley: Constructing a Game Plan

Tom Dooley, former CEO of R.T. Dooley Construction, says his 14 years of working out problems on an NFL football field helped him work out problems in business. “On the football field,” he observed, “you have a set of rules and a solution.” Dooley was proud of the fact that in all his years as CEO, he never had to retain an attorney to solve a legal problem!

“Nothing is black and white in business,” continued Dooley. “Everything is a compromise. On the football field, it is black and white. I can flush out every thought in the world when I’m on that field.” And like Dick Jorgensen, Tom Dooley got that same physical exhaustion but mental freshness after each game.

To make it possible for Tom to work weekends for the NFL and keep his business under control, he surrounded himself with “people smarter than I am.” And what was good for the boss was good for the troops. Business shut down every day at 11:30 am so employees could get in a vigorous noon workout at the local YMCA (the company paid every employee’s membership fee).

Dooley believed strongly in being “the best you can be.” After a lifetime of setting goals and achieving them, he still had one in his sights – to work a Super Bowl as head referee. He had a taste of Super Bowl action as a linesman at Super Bowl XV, Eagles vs Raiders, in 1981. But characteristic of every NFL referee, Dooley wanted a shot at the No. 1 position.

Red Cashion: A Variable Life

On April 21, 1990, Texas Independence Day, Red Cashion had the honor of being keynote speaker at Texas A&M’s “annual muster,” following in the footsteps of the mayor of San Antonio, the governor of Texas, and Ike Eisenhower. For a Texan, especially one that lived and worked in College Station (Aggie country), this was as big an honor as being referee at Super Bowl XX, Bears vs. Patriots, in 1986.

Speaking before students, athletes, and business people went with the territory for this NFL referee who was also chairman of ANCO insurance which he co-founded in 1966. The challenges and lessons of business and sport were inseparable for Cashion, helping him develop what he called “presence.”

Red enjoyed “being in the center of the action.” It took him 20 years of refereeing in junior high through college ranks before being accepted into the NFL where he officiated from 1972 – 1996 (25 years).

Obviously, the pressure of officiating wasn’t a problem for Cashion, having been at it for so long. He enjoyed keeping himself in shape through competitive handball. “Frankly,” he says, “I enjoy the annual NFL physical and stress test.”

The greater challenge for Cashion was making the right decision under pressure. Being an NFL referee helped him develop confidence in himself and his decisions, a quality employees respected.

When he returned each Monday following an NFL game, football was the topic of the day. Employees always greet him with questions about the game. Although Cashion admitted that “after a while, you forget which city you were in,” he will never forget being head referee in Super Bowls XX (1986, Bears vs Patriots) and XXX (1996, Cowboys vs. Steelers).

* * *

Note from Scott Pickard: “I wrote this feature article under assignment to Chief Executive magazine and it was subsequently published in September, 1990.  Sadly, Dick Jorgensen passed away in October, 1990.  He was a well-known personality and highly-respected leader in Champaign, IL.”

- sp -

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Poor performance at the branch office

by scott pickard

Dear CEO:

I think an improved performance evaluation process will help this situation in general, but that does not happen overnight. It’s an employee cultural thing and takes day-to-day management, leadership, and training to instill.

Human Resources Performance Review Weekly peer-review assessments directly assist in the management of performance on a regular basis. in general: balanced scorecard | branch office: Poor performance at the branch office sp | classifications: job descriptions, salary ranges | compensation: base + variable | Key Performance Indicators KPI | long cycle (annually) | peer review | professional development: educational assistance, training (skills) | self-assessment & reporting | short cycle (weekly): FairSetup > Collaboration | transparency | verification: skills incentives: loyalty: 401(K) matching, stock options, vesting | performance: profit-sharing bonus pool Information Technology objective: Key Performance Indicators (KPI) subjective: sample performance standards  Employees generally detest the annual performance review.

Employees generally detest the annual performance review.

I’ve heard you say before that you’ve never really fired anybody, and that’s another leadership task that must happen from time to time, otherwise employees know there’s no real accountability for whatever they do. This may or may not be one of those moments.

The big issue I see is you just don’t seem to have anybody on site that is your equivalent who has the technical and leadership ability and also is incentivized by base salary, bonus, and possibly equity participation to really put the time and energy into keeping that office running tightly and successfully. Even though I know you work your butt off every day, almost all day, trying to do that yourself remotely and also traveling there quite a bit, it’s not the same as having that leader who shows up first every morning and leaves the office every night last. If I were a potential buyer of your business, this would be one of the most important things I would be looking at. Of course, buyers typically plan to put one of their own people into that slot, or they will conduct a search and hire that person.

Let me know how I can help.

- sp -

Finding a neutral party to facilitate a merger of two businesses

by scott pickard

I wanted to run something by you, which may or may not be something you want to do or you may not have the time. But I thought of you immediately and think that you are well suited to this task.

I have a very good long-term friend who recently asked for my help to identify someone who could facilitate a negotiation between my friend and another owner with the goal of merging their two respective businesses. They have in effect reached a “gentleman’s agreement” to merge the businesses after having teamed together on some research proposals for the last two years and been very successful doing so. They’ve been talking about this for the last two years. Now they just need a neutral facilitator who can help them close in on the best plan and legal framework for merging the two businesses into one, and that’s where you would come in.

facilitate

I can give you a few specifics:

  • These two businesses are both involved in highway pavement engineering and research.
  • One is located in Portland Oregon; and the other is located in Tampa Florida.
  • The two companies are of the same approximate size, each generating $800K – $1M per year in revenues and they are both profitable.
  • The two owners feel that the companies complement each other perfectly.
  • Both the owners and staffs are compatible and have already worked together.
  • The two owners are certainly prepared to pay the going rate for professional services of this kind.
  • I don’t think they are looking for any further capitalization, but I do know that they want to grow the merged business.

These two Owner/CEOs are looking for a trusted third-party to help them talk through the process and reach a consensus on the best way to merge their two companies from several perspectives: legal, operational, strategic, and financial/tax.

If you are willing to consider this, I would like to suggest your name because I believe you have the integrity, personality, insight, and overall business background to help them pull these pieces together and agree on a plan of action so that they can go to their respective attorneys and say, “Here’s what we want to do, draft an agreement that we can sign so we can get started.”

So, what do you think? I’ll give you a call and see if this is something you’d like to take on.

sp

Due Diligence List

Due Diligence List has over 2,000 good due diligence questions organized under fourteen major functional areas of the business.  There is also a sister book, Leaders Ask Good Questions, which has the same questions organized alphabetically.